Accounting Standards: Woolworths Impairment Testing Report

This report examines the application of professional judgment in impairment testing for Woolworths Group Limited, an ASX-listed company adhering to IFRS and AASB guidelines. The study delves into the role of professional judgment in accounting, focusing on the calculation of asset useful lives and t...Read More

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ACCG8123: Accounting Standards and Practice
Session 1, 2021
Individual Assignment Application Of
Professional Judgment On
Impairment Testing Of
Woolworths Group Limited
Business Research Report
Due:
Word limit: 1,200 words

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Contents
Overview......................................................................................................................................3
Short Brief About Woolworths....................................................................................................3
Role of Professional Judgement in Accounting...........................................................................3
The management reached two professional decisions.................................................................3
Calculation of the useful lives of both tangible and intangible properties..............................3
Loss of ability..............................................................................................................................4
Woolworths Group Ltd. has written down the impairment.........................................................4
Improvement in Applications of Estimations..............................................................................4
Recommendation.........................................................................................................................5
Critical analysis...........................................................................................................................6
Conclusion...................................................................................................................................6
References........................................................................................................................................6
Appendices..................................................................................................................................8
Appendix B..................................................................................................................................9
Appendix C................................................................................................................................10

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Overview
The study aims to portray the value of accounting knowledge and the role of professional
judgment in accounting. Woolworths Corporation, an S&P/ASX constituent organization that
adheres to IFRS and AASB guidelines, has been chosen to conduct this research. The is
Business is one of Australia's most prestigious firms, with a reputation for excellent customer
service. The study discusses asset deficiency and its meaning, as well as actionable
recommendations for change.
Short Brief About Woolworths
The corporation is a profit-making organization of cutting-edge technologies and world-class
professionals (Van Kampen, 2020). This article summarises the Company's accounting
assumptions and policies, mostly in the area of asset/CGU impairment and the rationale for such
estimates and policies. The strategy follows a stringent protocol.
In the event of a global crisis or trade war, taking a cautious approach to estimate the recoverable
prices of assets/ CGUs is a smart idea.
Role of Professional Judgement in Accounting
Sound judgement necessitates a significant amount of planning, thorough experience, and
associated practise within the context provided by auditing, accounting, and ethical standards to
make adequate decisions on a particular condition that may arise as a result of an internal audit.
When preparing annual reports, the organization will choose accounting policies and forecasts to
produce favourable outcomes for the Company's name (Al-Dmour, 2018).
When preparing similar information for its clients, an organization's professional judgement
ensures that it meets the policies and guidelines set by regulatory bodies such as the AASB and
ASIC.
The management reached two professional decisions.
Calculation of the useful lives of both tangible and intangible properties.
The management buys properties for commercial purposes, including shipping, installation, taxes
(if not recoupable), and all other expenses. The assets face wear
Depreciation is the term used to describe the wear and tear that occurs over time. Two elements
are needed for depreciation to be applied, namely deflation rates in percent and the expected life
of properties. It is where clinical judgment and practice come into play.

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Loss of ability
When the carrying value of an asset approaches its recoverable value, it is said to be impaired.
Incapacity deficiency (Barr) is the disparity between the two prices.
The administration must review the carried value of properties and their recoverable value
annually, which is a difficult process.
Woolworths Group Ltd. has written down the impairment.
Important products were affected due to branch costs from BIG W and Endeavour Drinks,
according to the annual report for the fiscal year ended 30 June 2019.
(Appendix A). Due to the calculation of the recoverable sums, a net impairment fee of $187
million before tax was realized as an impairment loss (Karampinis, 2021). (Woolworths Group
Limited 2019).
On 1 April 2019, Woolworths Group Limited (2019) announced that the injury to BIGW of
central plants and facilities valued at $110 million and impairment of store facilities and facilities
in the amount of $56 million had been paid as a predatory impairment before the levy.
Endeavour Beverages has a division expense of $21 million relating to impairment of reputation
and other intangible properties connected with the Summergate market in China, according to
Woolworths Group Limited (2019).
The corporation uses the value in use (VIU) to determine the recoverable sum and specifies that
the existing board-approved corporate strategy, taking into account a maximum five-year
outlook, is to forecast potential cash flows. (Woolworths Group Limited 2019).
Improvement in Applications of Estimations
A company's assets must be published on a timely basis and with proper research. (Australian
Securities and Investments Commission 2020).
Careful attention must be paid to the Woolworths Group's examination of such accounting
principles and procedures relating to non-financial asset impairments, as the "directors
assessments, judgments, and judgments were based on previous experience, adjusted for current
economic conditions, and other factors considered to be reasonable and justified, and are based
on

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Woolworths Group has maintained, in evaluating the VIU estimates, that the considerations are
in line with AASB 136 and with the current ASIC (19-143MR) press release criteria which could
bring about substantive improvements to business performance.
The Company was disclosed that the estimates of its current value were properly discounted by a
pre-tax rate determined by the correlation between the value of time of money and risk with a
particular asset and present financial conditions, ensuring the evaluation of sensitivity as the
Company believed that any reasonable market and cash-gene change was taken into account
(Appendix B)
With the relevance and durability of the hypothesis, the corporation is generally compliant with
AASB 136 since, in the estimation of the amount recoverable, it considers the higher VIU of an
asset and its fair valuation to be fewer costs disposable.
Overall, in compliance with AASB 136, the Woolworths Group had complied successfully with
the disclosures.
Sufficient sensitivity analyses and substantial transparency is used to determine potential cash
flow forecasts, utilization of valuation, discount rates given historical business results, and
current patterns that can be monitored.
It is also strengthened by Deloitte's The external auditor's report offered a certain degree of fair
certainty.
Recommendation
The Deloitte External Auditor's Report provides recommendations for improving the figures of
the Woolworths Group on disability loss. The report discusses key audit issues which play a
major role in their professional judgment. However, the highest prudence, statistical precision,
and sensitivity have been given for these matters, leading Deloitte to believe that the calculation
of figures for certain properties and results are adequate and unmodified in no irregularities
(Appendix C Asset intoxication:
The Company's real and intangible properties have been reduced to the tune of $ 166 million.
Since the firm has now reversed an affected loss, the Company's estimate of retrievable values
appears to be accurate.

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When it is expected that the assets' selling value will cover their carrying value, adjustments are
made to the assets (Stein, 2019). To warrant an extra impairment fee, the corporation further
reduces its operating earnings by 50 basis points.
Critical analysis
When determining the recoverable sum of an asset/ CGU, the firm uses the best expertise, which
is as follows:
1. Cash Flows to be Expected
2. Long-term growth and discount rates are two of the most important factors to consider.
3. Woolworths is a supermarket chain in the United Kingdom that
4. Previous industry achievements.
5. Confusion in the business world and its ramifications.
Conclusion
Woolworths Group has one of the most significant presences in the ASX200, emphasizing the
importance of keeping customers up to date on the Company's status through the details
presented in the annual report. The Company's accountant and directors
are unquestionably responsible for ensuring that the calculations and accounting policies used
follow relevant mandates such as AASB 136. The probing carried out in the study notates the
calculations and accounting policies used for non-financial asset impairments and the extent of
expert judgment used in the decision-making process, and the interpretation of the financial
statements. Woolworth Group has consistently applied applicable judgment in disability testing
equivalent to the industry standard and has adhered to the established standards.
References
Al-Damour, A. A. M. a. A.-B. N., 2018. The impact of the quality of financial reporting on non-
financial business performance and the role of organizations demographic attributes. Type, size
and experience.
Karampinis, N., 2021. A cross-national analysis on the impact of enforcement on impairments of
tangible assets under IFRS. Journal of International Accounting. Auditing and Taxation, 42,
p.100358.

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Stein, S., 2019. Auditor industry specialization and accounting estimates. Evidence from asset
impairments. Auditing: A Journal of Practice & Theory, pp. 38(2), pp.207-234.
Van Kampen, T. a. K. R., 2020. Assessment of the Supermarkets and Grocery Stores Sector in
Australia. A Case Study of Woolworths and Coles using DEA and VAIC™. Journal of New
Business Ideas & Trends, p. 18(1).

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Appendices

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Appendix B

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Appendix C